Summary of Digi International's Acquisition of Jolt Software Conference Call Company and Industry - **Company**: Digi International (DGII) - **Acquisition Target**: Jolt Software - **Industry**: Technology, specifically focusing on operational intelligence and workflow optimization in sectors like food and beverage and healthcare Core Points and Arguments - **Acquisition Announcement**: Digi International announced the acquisition of Jolt for $145.5 million in cash, net of Jolt's cash and subject to customary adjustments, funded through existing credit lines [6][7] - **Strategic Fit**: Jolt's operational intelligence platform is expected to enhance Digi's SmartSense market leadership by optimizing workflows and adding capabilities in printing, labeling, and labor scheduling [5][6] - **Revenue Generation**: Jolt generated over $20 million in annualized recurring revenue (ARR) as of January 31, 2025, and is growing at a faster rate than Digi's IoT Solutions segment [7][36] - **Synergies**: The combined business plans to achieve $11 million in incremental annualized adjusted EBITDA by the end of 2026, driven by expected synergies from the merger [7][26] - **Customer Overlap**: There is minimal overlap between Jolt's and SmartSense's existing customer bases, allowing for cross-selling opportunities [12][13] Additional Important Content - **Market Positioning**: The acquisition is seen as a game changer, potentially changing the competitive landscape by offering a comprehensive suite of solutions in both healthcare and food and beverage sectors [55][56] - **Sales Integration**: The two sales organizations will be combined to leverage best practices, focusing on vertical markets rather than territory-based approaches [27][28] - **Financial Profile**: Jolt's financial profile is expected to mirror Digi's existing solutions business, with gross margins likely exceeding 80% [40][41] - **Retention Metrics**: While specific retention metrics were not disclosed, it was indicated that Jolt's customer success organization could benefit from SmartSense's more mature practices [43] - **Future M&A Activity**: Digi remains active in pursuing additional M&A opportunities despite the recent acquisition, indicating a strong leverage position and capability to rapidly deleverage [62] Conclusion - The acquisition of Jolt Software is positioned as a strategic move to enhance Digi International's offerings in operational intelligence and workflow optimization, with significant expected synergies and growth potential in the combined business model.

Financial Data and Key Metrics Changes - Digi International reported a return to year-over-year revenue growth, with annual recurring revenue (ARR) growing double digits for the third consecutive quarter [6][8] - ARR now represents approximately 30% of trailing twelve months revenues, marking a new record for the company [7] - Adjusted EBITDA margins reached a record 25.6%, driven by ARR and a favorable product mix, despite increased freight and duties costs [8] Business Line Data and Key Metrics Changes - Both reporting segments contributed to the growth in ARR, with tailored IoT solutions simplifying deployment for customers [7] - The company experienced broad-based contributions across various product categories, with improved margins in certain products [16] Market Data and Key Metrics Changes - Demand in North America is gaining prominence, while APAC has been softer than expected [40] - The utility segment and mass transit markets are showing strong demand, while the renewable market has weakened [39] Company Strategy and Development Direction - The company aims to prioritize strategic acquisitions that align with ARR growth and scale objectives [9] - Digi International is focused on maintaining a diversified global supply chain to adapt to market changes and customer needs [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improved decision-making from customers due to increased certainty in financial policies and tariffs [23] - The company anticipates that ARR and profitability will continue to outpace top-line revenue growth beyond fiscal year 2025 [55][56] Other Important Information - The company retired $30 million in debt this quarter, reducing net debt to $20 million, and is on track to be net cash positive by the end of fiscal year 2025 [9] - Free cash flow generation is highlighted as a key performance indicator, with a 9% free cash flow yield [8] Q&A Session Summary Question: Update on products and services ARR and attach rates - Management noted an increase in attach rates, with new business primarily in the IT area, contributing to recurring revenue growth [16] Question: Guidance for fourth quarter and sequential sales - Management indicated that while sales may appear flat sequentially, year-over-year growth is expected, driven by gross margin rather than operating expenses [19] Question: Demand outside of APAC and project initiation - Management is optimistic that improved financial policies and tariff certainty will lead to more timely decision-making by customers [23] Question: Size of the opportunity for OpenGear in AI infrastructure - Management highlighted a slight increase in data center business, with a focus on hybrid deployments as a growth area [25] Question: Inventory normalization and customer reordering - Management confirmed that inventory levels have normalized, and there are positive signs of improved channel velocity [26] Question: Geographical and vertical market activity - Management reported strong demand in utilities and mass transit, while the renewable market has weakened [39] Question: Competitive landscape and cost management - Management emphasized the importance of a diversified supply chain and the potential for short-term opportunities due to competitors' challenges [45] Question: Capital allocation priorities - Management stated that M&A remains the top priority for capital deployment over share buybacks [48] Question: Outlook for 2025 and interplay of recurring revenue - Management expects ARR and profitability to outpace top-line growth, with a focus on multi-year service opportunities [55][56]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Unaudited Financial Statements](index=3&type=section&id=ITEM%201.%20Unaudited%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the three and nine months ended June 30, 2025, including operations, balance sheets, cash flows, and explanatory notes [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q3 2025 saw a slight revenue increase to $107.5 million and improved net income, while nine-month net income significantly rose to $30.8 million due to lower other expenses Q3 Fiscal 2025 vs Q3 Fiscal 2024 (Three months ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $107,514 | $105,203 | +2.2% | | **Gross Profit** | $68,268 | $62,258 | +9.7% | | **Operating Income** | $14,923 | $12,908 | +15.6% | | **Net Income** | $10,243 | $9,702 | +5.6% | | **Diluted EPS** | $0.27 | $0.26 | +3.8% | Nine Months Fiscal 2025 vs Nine Months Fiscal 2024 (ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $315,883 | $318,994 | -1.0% | | **Gross Profit** | $197,599 | $185,676 | +6.4% | | **Operating Income** | $42,009 | $33,192 | +26.6% | | **Net Income** | $30,823 | $10,642 | +189.6% | | **Diluted EPS** | $0.82 | $0.29 | +182.8% | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets decreased to $770.3 million, driven by reduced long-term debt and inventories, leading to lower liabilities and increased stockholders' equity Selected Balance Sheet Data (in thousands) | Account | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $20,104 | $27,510 | | Inventories | $35,439 | $53,357 | | Total assets | $770,341 | $815,075 | | Long-term debt | $40,085 | $123,185 | | Total liabilities | $148,834 | $234,040 | | Total stockholders' equity | $621,507 | $581,035 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended June 30, 2025, operating cash flow significantly increased, while financing activities used substantial cash, resulting in a net decrease in cash and equivalents Cash Flow Summary (Nine months ended June 30, in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $79,958 | $56,657 | | Net cash (used in) provided by investing activities | $(2,148) | $947 | | Net cash used in financing activities | $(85,291) | $(62,616) | | **Net decrease in cash and cash equivalents** | **$(7,406)** | **$(3,356)** | | Cash and cash equivalents, end of period | $20,104 | $28,337 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, segment performance, goodwill impairment, a new credit facility, revenue by region, key customer concentration, and remaining performance obligations - The annual goodwill impairment test was completed as of June 30, 2025, for both the IoT Products & Services and IoT Solutions reporting units, with the fair value exceeding the carrying value for each, resulting in **no impairment**[25](index=25&type=chunk)[27](index=27&type=chunk) - On December 7, 2023, Digi entered into a new credit agreement providing a **$250 million** senior secured revolving credit facility, which was used to repay all obligations under the prior credit facility[28](index=28&type=chunk)[29](index=29&type=chunk) - One distributor customer within the IoT Products & Services segment accounted for **16% of consolidated revenue** for both the three and nine months ended June 30, 2025[38](index=38&type=chunk) - As of June 30, 2025, the company had approximately **$158.9 million** of remaining performance obligations, with about **$78.4 million** expected to be recognized as revenue over the next 12 months[44](index=44&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2025 revenue growth, improved gross margins, and increased ARR, noting that macroeconomic conditions are extending sales cycles and impacting future results [Overview and Key Objectives](index=20&type=section&id=OVERVIEW) Digi, an IoT solutions provider, aims to transition to complete solutions and grow ARR, but anticipates adverse impacts from longer sales cycles due to macroeconomic conditions - Key operating objectives for fiscal 2025 include transitioning to complete solutions with software and services to drive Annualized Recurring Revenue (ARR) and improving customer service[72](index=72&type=chunk)[76](index=76&type=chunk) - Annualized Recurring Revenue (ARR) grew **12% year-over-year** to **$126 million** as of the end of Q3 2025[76](index=76&type=chunk) - The company is experiencing **longer sales cycles** due to macroeconomic conditions, which is expected to negatively impact financial results for at least the remainder of fiscal 2025[73](index=73&type=chunk) [Consolidated Results of Operations](index=20&type=section&id=CONSOLIDATED%20RESULTS%20OF%20OPERATIONS) Q3 2025 saw consolidated revenue growth driven by IoT Solutions, significant gross profit margin expansion, increased operating expenses, and a notable decrease in other expenses Revenue by Segment - Q3 2025 vs Q3 2024 (in thousands) | Segment | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | IoT Products & Services | $80,032 | $80,003 | 0.0% | | IoT Solutions | $27,482 | $25,200 | +9.1% | | **Total Revenue** | **$107,514** | **$105,203** | **+2.2%** | Gross Profit Margin by Segment - Q3 2025 vs Q3 2024 | Segment | 2025 | 2024 | Basis Point Change | | :--- | :--- | :--- | :--- | | IoT Products & Services | 60.6% | 54.4% | +620 | | IoT Solutions | 72.0% | 74.4% | -240 | | **Total Gross Profit Margin** | **63.5%** | **59.2%** | **+430** | - The decrease in Other Expense for the nine months ended June 30, 2025 was primarily driven by a **$9.7 million write-off** of debt issuance costs in the prior year and an **$8.0 million reduction** in interest expense[90](index=90&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company maintains strong liquidity, with significantly increased operating cash flow and a new $250 million revolving credit facility, ensuring sufficient funding for future operations - Cash flows from operating activities increased by **$23.3 million** for the nine months ended June 30, 2025, compared to the same period in 2024[105](index=105&type=chunk) - A new **$250 million** senior secured revolving credit facility was established on December 7, 2023, replacing the prior credit agreement[103](index=103&type=chunk) Contractual Obligations at June 30, 2025 (in thousands) | Obligation | Total | Less than 1 year | 1-3 years | 3-5 years | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $14,049 | $3,503 | $4,366 | $3,724 | $2,456 | | Revolving loan | $41,000 | $— | $— | $41,000 | $— | | **Total** | **$55,049** | **$3,503** | **$4,366** | **$44,724** | **$2,456** | [Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rate fluctuations on variable-rate debt and foreign currency exchange rate changes, impacting interest expense and stockholders' equity - The company is exposed to interest rate risk on its **$41.0 million** outstanding variable-rate Revolving Loan. A **25 basis point** change in interest rates would increase or decrease annual interest expense by **$0.1 million**[110](index=110&type=chunk)[113](index=113&type=chunk) - Foreign currency translation risk exists from consolidating foreign subsidiaries. A **10% change** in the exchange rates for the Euro, British Pound, Australian Dollar, and Canadian Dollar would impact stockholders' equity by **0.9%**[114](index=114&type=chunk)[115](index=115&type=chunk) [Controls and Procedures](index=30&type=section&id=ITEM%204.%20Controls%20and%20Procedures) As of June 30, 2025, disclosure controls and procedures were deemed effective, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective** as of June 30, 2025[117](index=117&type=chunk) - No changes occurred during the nine months ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[118](index=118&type=chunk) [PART II. OTHER INFORMATION](index=31&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=31&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is subject to various claims and litigation in the normal course of business, with further details referenced in the financial statements - In the normal course of business, the company is subject to various claims and litigation with third parties[56](index=56&type=chunk)[119](index=119&type=chunk) [Risk Factors](index=31&type=section&id=ITEM%201A.%20Risk%20Factors) Key risks include product obsolescence from rapid technological changes like AI, evolving industry standards, and potential adverse impacts from new international tariffs - The company's future success is susceptible to rapid technological changes, such as the introduction of artificial intelligence, which could render existing products **obsolete or unmarketable**[121](index=121&type=chunk)[122](index=122&type=chunk) - Potential new or incremental international tariffs pose a risk to the business, with the potential to disrupt supply chains, increase costs, and make products **less competitive**[124](index=124&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q3 2025, the company repurchased 5,448 shares of common stock at $31.18 per share, primarily for tax withholding on restricted stock units Share Repurchases in Q3 Fiscal 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | — | $— | | May 2025 | 5,448 | $31.18 | | June 2025 | — | $— | | **Total** | **5,448** | **$31.18** | [Exhibits](index=33&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including CEO/CFO certifications and iXBRL formatted financial statements - The filing includes certifications from the CEO (Exhibit 31a) and CFO (Exhibit 31b), a Section 1350 Certification (Exhibit 32), and financial data formatted in iXBRL (Exhibit 101)[129](index=129&type=chunk)

[Overall Financial Performance](index=1&type=section&id=Digi%20International%20Reports%20Third%20Fiscal%20Quarter%202025%20Results) [Third Quarter Fiscal 2025 Financial Highlights](index=1&type=section&id=Third%20Fiscal%20Quarter%202025%20Results%20Compared%20to%20Third%20Fiscal%20Quarter%202024%20Results) Digi reported Q3 FY2025 revenue of $108 million, with Adjusted EBITDA up 11% to $28 million and ARR growing 12% to $126 million Q3 FY2025 Key Financial Metrics (vs. Q3 FY2024) | Metric | Q3 FY2025 | Change (YoY) | | :--- | :--- | :--- | | Revenue | $108 million | +2% | | Gross Profit Margin | 63.5% | +430 bps | | Net Income | $10 million | +6% | | Net Income per Diluted Share | $0.27 | +4% | | Adjusted Net Income per Diluted Share | $0.53 | +6% ($0.50 in Q3'24) | | Adjusted EBITDA | $28 million | +11% | | Annualized Recurring Revenue (ARR) | $126 million | +12% | - CEO Ron Konezny highlighted strong execution, double-digit ARR growth, and improved profitability despite a dynamic geopolitical environment. The company's strong cash flow enabled a **$30 million debt paydown**[5](index=5&type=chunk) [Segment Performance](index=2&type=section&id=Segment%20Results) Segment performance showed flat IoT Product & Services revenue with strong ARR growth, while IoT Solutions revenue increased with a gross margin decline [IoT Product & Services](index=2&type=section&id=IoT%20Product%20%26%20Services) IoT Product & Services revenue was flat at $80 million, but ARR grew 30% to $30 million with a 620 basis point gross margin improvement IoT Product & Services Q3 FY2025 Performance | Metric | Q3 FY2025 | Change (YoY) | | :--- | :--- | :--- | | Revenue | $80.0 million | Flat | | ARR | $30 million | +30% | | Gross Profit Margin | 60.6% | +620 bps | - The growth in ARR was attributed to an expanding subscription base for remote management platforms and extended warranty offerings[8](index=8&type=chunk) [IoT Solutions](index=2&type=section&id=IoT%20Solutions) IoT Solutions revenue increased to $27.5 million with 7% ARR growth, though gross margin declined by 240 basis points IoT Solutions Q3 FY2025 Performance | Metric | Q3 FY2025 | Change (YoY) | | :--- | :--- | :--- | | Revenue | $27.5 million | +9.1% | | ARR | $96 million | +7% | | Gross Profit Margin | 72.0% | -240 bps | - ARR growth was driven by both SmartSense and Ventus product lines[9](index=9&type=chunk) [Financial Condition and Capital Allocation](index=2&type=section&id=Capital%20Allocation%20Strategy) Digi prioritized deleveraging, reducing debt to $40.1 million and inventory to $35 million, while focusing on strategic acquisitions - The company's capital allocation priorities are deleveraging the balance sheet and pursuing disciplined acquisitions focused on scale and ARR[10](index=10&type=chunk) Key Balance Sheet & Cash Flow Items (Q3 FY2025) | Metric | Q3 FY2025 End | Change from FY2024 YE | | :--- | :--- | :--- | | Outstanding Debt | $40.1 million | Decreased | | Cash and Cash Equivalents | $20.1 million | - | | Debt, Net of Cash | $20.0 million | - | | Inventory | $35 million | Down from $53 million | | Cash Flow from Operations | $24 million | - | [Business Outlook and Guidance](index=3&type=section&id=Fourth%20Fiscal%20Quarter%202025%20Guidance) [Fiscal Year 2025 Guidance](index=3&type=section&id=Fiscal%20Year%202025%20Guidance) Digi raised its FY2025 Adjusted EBITDA growth outlook to 7-8% while maintaining flat revenue and 10% ARR growth projections Updated Full-Year FY2025 Guidance | Metric | FY2025 Projection (YoY) | | :--- | :--- | | ARR Growth | 10% (Unchanged) | | Revenue | Flat (Unchanged) | | Adjusted EBITDA Growth | 7-8% (Raised from ~5%) | - The company is committed to achieving a net cash positive position by the end of the fiscal year[16](index=16&type=chunk) [Fourth Quarter Fiscal 2025 Guidance](index=3&type=section&id=Fourth%20Fiscal%20Quarter%202025%20Guidance) Q4 FY2025 guidance projects revenue between $106 million and $110 million, with Adjusted EBITDA from $25.5 million to $27.0 million Q4 FY2025 Guidance | Metric | Guidance Range | | :--- | :--- | | Revenue | $106M - $110M | | Adjusted EBITDA | $25.5M - $27.0M | | Adjusted Net Income per Diluted Share | $0.47 - $0.51 | [Long-Term Goals](index=3&type=section&id=Long-Term%20Goals) Digi aims to achieve $200 million in both ARR and Adjusted EBITDA by the end of fiscal 2028, with potential acceleration via acquisitions - The company's long-term goal is to achieve **$200 million in ARR** and **$200 million in Adjusted EBITDA** by the end of fiscal 2028[12](index=12&type=chunk) - ARR growth is stated as the company's top strategic priority[13](index=13&type=chunk) [Consolidated Financial Statements](index=7&type=section&id=Consolidated%20Financial%20Statements) [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q3 FY2025 revenue increased to $107.5 million, with gross profit at $68.3 million and net income at $10.2 million, or $0.27 per diluted share Q3 FY2025 Statement of Operations (in thousands) | Line Item | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | Revenue | $107,514 | $105,203 | | Gross Profit | $68,268 | $62,258 | | Operating Income | $14,923 | $12,908 | | Net Income | $10,243 | $9,702 | | Diluted EPS | $0.27 | $0.26 | [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets were $770.3 million, with inventories at $35.4 million and long-term debt significantly reduced to $40.1 million Balance Sheet Highlights (in thousands) | Line Item | June 30, 2025 | Sept 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $20,104 | $27,510 | | Inventories | $35,439 | $53,357 | | Total Assets | $770,341 | $815,075 | | Long-term debt | $40,085 | $123,185 | | Total Liabilities | $148,834 | $234,040 | | Total Stockholders' Equity | $621,507 | $581,035 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Nine-month operating cash flow was $80.0 million, with $85.3 million used in financing activities, ending with $20.1 million in cash Nine-Month Cash Flow Summary (in thousands) | Line Item | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $79,958 | $56,657 | | Net cash used in financing activities | $(85,291) | $(62,616) | | Cash and cash equivalents, end of period | $20,104 | $28,337 | [Non-GAAP Financial Measures](index=9&type=section&id=Non-GAAP%20Financial%20Measures) [Reconciliation of Net Income to Adjusted EBITDA](index=9&type=section&id=Reconciliation%20of%20Net%20Income%20to%20Adjusted%20EBITDA) Q3 FY2025 Adjusted EBITDA increased to $27.6 million (25.6% of revenue), reflecting adjustments for depreciation and stock-based compensation Adjusted EBITDA Reconciliation (in thousands) | Line Item | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | Net Income | $10,243 | $9,702 | | Adjustments (Depreciation, Stock Comp, etc.) | $13,594 | $15,023 | | **Adjusted EBITDA** | **$27,559** | **$24,725** | | Adjusted EBITDA Margin | 25.6% | 23.5% | [Reconciliation of Net Income to Adjusted Net Income](index=9&type=section&id=Reconciliation%20of%20Net%20Income%20and%20Net%20Income%20per%20Diluted%20Share%20to%20Adjusted%20Net%20Income%20and%20Adjusted%20Net%20Income%20per%20Diluted%20Share) Q3 FY2025 Adjusted Net Income was $20.1 million, or $0.53 per diluted share, after adjustments for intangibles and stock-based compensation Adjusted Net Income Reconciliation (in thousands, except per share) | Line Item | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | Net Income | $10,243 | $9,702 | | **Adjusted Net Income** | **$20,115** | **$18,486** | | Net Income per Diluted Share | $0.27 | $0.26 | | **Adjusted Net Income per Diluted Share** | **$0.53** | **$0.50** | [Other Information](index=3&type=section&id=Other%20Information) [Conference Call Information](index=3&type=section&id=Third%20Fiscal%20Quarter%202025%20Conference%20Call%20Details) Digi will host a conference call on August 6, 2025, at 5:00 p.m. ET to discuss Q3 FY2025 results, with webcast access available - The earnings conference call is scheduled for August 6, 2025, at 5:00 p.m. ET[17](index=17&type=chunk) - A live webcast and a replay will be available through the investor relations section of Digi's website[18](index=18&type=chunk)[19](index=19&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section cautions that forward-looking statements are subject to risks including inflation, supply chain issues, and geopolitical factors - The press release includes forward-looking statements concerning business performance, profitability, and market conditions[22](index=22&type=chunk) - Key risks cited include inflationary pressures, supply chain challenges, regulatory changes, cybersecurity, and military conflicts[22](index=22&type=chunk)

Company Performance - Digi International reported quarterly earnings of $0.51 per share, exceeding the Zacks Consensus Estimate of $0.49 per share, and showing an increase from $0.49 per share a year ago, representing an earnings surprise of 4.08% [1] - The company posted revenues of $104.5 million for the quarter ended March 2025, which was below the Zacks Consensus Estimate by 0.13% and a decrease from $107.7 million in the same quarter last year [2] - Over the last four quarters, Digi International has surpassed consensus EPS estimates two times and topped consensus revenue estimates only once [2] Stock Outlook - The stock has underperformed the market, losing about 7.4% since the beginning of the year compared to the S&P 500's decline of 4.7% [3] - The current consensus EPS estimate for the upcoming quarter is $0.50 on revenues of $105.76 million, and for the current fiscal year, it is $1.99 on revenues of $422.12 million [7] - The estimate revisions trend for Digi International is currently unfavorable, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6] Industry Context - The Computer - Networking industry, to which Digi International belongs, is currently ranked in the bottom 37% of over 250 Zacks industries, suggesting that the outlook for the industry can significantly impact stock performance [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Core Viewpoint - Digi International, Inc. held its Second Quarter Fiscal 2025 Earnings Conference Call to discuss its financial performance and outlook for the future [1][3]. Group 1: Company Performance - The earnings release was issued after the market closed, and it is available on the company's investor relations website [3]. - The call featured comments from Jamie Loch, the Chief Financial Officer, and Ron Konezny, the President and CEO, regarding the company's performance [3][4]. Group 2: Forward-Looking Statements - The conference included forward-looking statements that are subject to significant risks and uncertainties, reflecting the company's expectations about future operating and financial performance [4][5]. - The company does not undertake any obligation to update or revise these forward-looking statements, although it believes the expectations are reasonable [5].

Financial Data and Key Metrics Changes - Annual Recurring Revenue (ARR) grew 12% year over year to a record $123 million in the quarter, representing 29% of annualized quarterly revenues [6][7] - Free cash flow generation was $26 million in the quarter, reducing net debt to $45 million after paying down $25 million of debt [7][9] - Current free cash flow yield is at 9%, with expectations to be net cash positive by the end of the fiscal year [8][9] Business Line Data and Key Metrics Changes - The recurring revenue trends in Products and Services (P&S) increased over 20% in the quarter, driven by improved attach rates of software and services [15][16] - The inventory position has improved significantly, approaching historical norms, indicating a positive trend in inventory management [7][20] Market Data and Key Metrics Changes - Demand remains steady across most regions, with the exception of a weaker performance in the APAC region [24][30] - Sales cycle lengths and order sizes have stabilized post-COVID, with no significant deterioration observed [30] Company Strategy and Development Direction - The company is focused on a solution-oriented approach in the industrial IoT market, emphasizing software and services to enhance product offerings [6][16] - Plans to pursue solution-oriented acquisitions of scale as the balance sheet improves [9] Management's Comments on Operating Environment and Future Outlook - The macro environment is acknowledged as fluid, but the company has a robust history of adaptability and resiliency [10] - Current outlook assumes steady demand and existing tariff rates, with no anticipated drop-off in demand [9] Other Important Information - The company has diversified and optimized its supply chain across geographies and suppliers, enhancing flexibility in operations [10][32] Q&A Session Summary Question: What operational levers are being used to unlock recurring revenue growth? - The company is focusing on providing complete solutions by attaching software and services to products, which has improved attach rates [16] Question: How is the inventory situation evolving? - The inventory situation is resolving itself, with a significant reduction in inventory levels, returning to normalized levels [20] Question: How has macro volatility affected customer spending? - Demand remains steady, with some fluidity acknowledged, particularly in the APAC region [24] Question: What is the status of software attach rates? - Software attach rates are improving, with ongoing efforts to increase these rates across the portfolio [25] Question: What is the current state of deal timelines and supply chain? - Sales cycles have stabilized, and the company is monitoring opportunities closely, with no significant deterioration noted [30] Question: How is the company managing tariff exposures? - The outlook incorporates current tariff states, with a focus on maintaining flexibility in operations to mitigate potential impacts [33] Question: How are the Ventus and SmartSense solutions performing? - Both solutions are performing well, with growth offsetting some soft churn, and the company is extending the Ventus model into its cellular router business [36]

Financial Data and Key Metrics Changes - Annual Recurring Revenue (ARR) grew 12% year over year to a record $123 million in the quarter, representing 29% of annualized quarterly revenues [6][7] - Free cash flow generation was $26 million, allowing the company to reduce net debt to $45 million after paying down $25 million during the quarter [7][8] - The company expects to be net cash positive by the end of the fiscal year, a quarter earlier than initially planned [8] Business Line Data and Key Metrics Changes - The recurring revenue trends in Products and Services (P&S) increased over 20% in the quarter, driven by improved attach rates of software and services to products [14][15] - The inventory position improved significantly, approaching historical norms, indicating a positive trend in inventory management [8][19] Market Data and Key Metrics Changes - Demand remains steady across most regions, with the exception of the APAC region, where sales have been weaker [24][30] - The company has diversified and optimized its supply chain across geographies and suppliers, enhancing its resilience to macroeconomic changes [9][32] Company Strategy and Development Direction - The company is focused on a solution-oriented approach in the industrial IoT market, emphasizing software and services to enhance product offerings [6][15] - There is a commitment to pursuing solution-oriented acquisitions of scale as the balance sheet improves [8] Management's Comments on Operating Environment and Future Outlook - The management acknowledges a fluid macro environment but expresses confidence in the company's adaptability and resilience [9][30] - The outlook for the remainder of fiscal 2025 assumes current tariff rates and steady demand, with no anticipated drop-off [8][24] Other Important Information - The company is working on extending the Ventus model into its cellular router business, which may impact top-line revenue but contribute positively to ARR [36][39] - Management noted that the software attach rates are improving, although they are still below 50% across the portfolio [25] Q&A Session Summary Question: What operational levers are being used to unlock recurring revenue growth? - The company is focusing on providing complete solutions by attaching software and services to products, which has improved attach rates [15] Question: How is macro volatility affecting customer spending? - Demand remains steady, with some fluidity acknowledged, particularly in the APAC region [24][30] Question: What is the current state of inventory management? - The inventory situation is resolving, with significant reductions noted, and the company is approaching normalized levels [19][31] Question: What are the timelines for closing deals and supply chain management? - Sales cycles have stabilized, with no deterioration observed except in the APAC region [30] Question: How is the company managing tariff exposures? - The outlook incorporates current tariff rates, and the company has options to manage potential impacts from reciprocal tariffs [33][34]

PART I. FINANCIAL INFORMATION [Item 1. Unaudited Financial Statements](index=3&type=section&id=ITEM%201.%20Unaudited%20Financial%20Statements) Unaudited financial statements for the period ended March 31, 2025, show a slight revenue decrease, significant net income growth, and improved operating cash flow, with reduced total liabilities [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended March 31, 2025, total revenue slightly decreased, while operating income and net income significantly increased due to lower costs and expenses Consolidated Statements of Operations Highlights (Three Months Ended March 31) | Metric | 2025 (in thousands) | 2024 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $104,503 | $107,702 | -3.0% | | Product Revenue | $71,987 | $78,432 | -8.2% | | Service Revenue | $32,516 | $29,270 | +11.1% | | **Gross Profit** | $64,933 | $62,318 | +4.2% | | **Operating Income** | $13,727 | $8,151 | +68.4% | | **Net Income** | $10,497 | $3,994 | +162.8% | | **Diluted EPS** | $0.28 | $0.11 | +154.5% | Consolidated Statements of Operations Highlights (Six Months Ended March 31) | Metric | 2025 (in thousands) | 2024 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $208,369 | $213,791 | -2.5% | | **Gross Profit** | $129,331 | $123,418 | +4.8% | | **Operating Income** | $27,086 | $20,284 | +33.5% | | **Net Income** | $20,580 | $940 | +2089.4% | | **Diluted EPS** | $0.55 | $0.03 | +1733.3% | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2025, total assets slightly decreased, total liabilities significantly reduced due to lower long-term debt, and total stockholders' equity increased Selected Balance Sheet Data (as of March 31, 2025 vs. September 30, 2024) | Account | March 31, 2025 (in thousands) | September 30, 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $26,296 | $27,510 | -$1,214 | | Inventories | $38,601 | $53,357 | -$14,756 | | Total current assets | $134,726 | $154,447 | -$19,721 | | Goodwill | $341,669 | $342,774 | -$1,105 | | **Total assets** | **$781,024** | **$815,075** | **-$34,051** | | Long-term debt | $70,018 | $123,185 | -$53,167 | | **Total liabilities** | **$175,806** | **$234,040** | **-$58,234** | | **Total stockholders' equity** | **$605,218** | **$581,035** | **+$24,183** | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended March 31, 2025, net cash from operations significantly improved, while cash used in financing activities increased, resulting in a slight net decrease in cash Cash Flow Summary (Six Months Ended March 31) | Activity | 2025 (in thousands) | 2024 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $56,005 | $31,727 | | Net cash (used in) provided by investing activities | $(1,135) | $1,425 | | Net cash used in financing activities | $(56,037) | $(42,692) | | **Net decrease in cash and cash equivalents** | **$(1,214)** | **$(7,898)** | | Cash and cash equivalents, end of period | $26,296 | $23,795 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, segment performance, and revenue recognition, highlighting a new credit agreement, growth in IoT Solutions, and remaining performance obligations - On December 7, 2023, Digi entered into a new Credit Agreement with BMO, providing a **$250 million** senior secured revolving credit facility[27](index=27&type=chunk)[28](index=28&type=chunk) - Proceeds from the new credit facility were used to repay all obligations under the prior credit facility, resulting in a **$9.7 million** write-off of remaining debt issuance costs[31](index=31&type=chunk) Segment Revenue (Six Months Ended March 31) | Segment | 2025 (in thousands) | 2024 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | IoT Products & Services | $155,606 | $165,413 | -5.9% | | IoT Solutions | $52,763 | $48,378 | +9.1% | | **Total Revenue** | **$208,369** | **$213,791** | **-2.5%** | Revenue by Geography (Six Months Ended March 31) | Region | 2025 (in thousands) | 2024 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | North America | $162,554 | $152,093 | +6.9% | | Europe, Middle East & Africa | $32,999 | $33,875 | -2.6% | | Rest of world | $12,816 | $27,823 | -53.9% | - As of March 31, 2025, the company had approximately **$160.8 million** of remaining performance obligations, with about **$76.2 million** expected to be recognized as revenue over the next 12 months[43](index=43&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2025 revenue decline, offset by IoT Solutions growth, improved gross profit margin, strong net income and Adjusted EBITDA, and increased Annualized Recurring Revenue Q2 2025 Key Metrics vs. Q2 2024 | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Consolidated Revenue | $105M | $108M | -3% | | Gross Profit Margin | 62.1% | 57.9% | +420 bps | | Net Income | $10M | $4M | +150% | | Diluted EPS | $0.28 | $0.11 | +155% | | Adjusted EBITDA | $26M | $24M | +8.3% | | ARR (at quarter end) | $123M | $110M | +12% | - The company is experiencing longer than expected sales cycles, which is believed to be related to macroeconomic conditions and may adversely impact results for the remainder of fiscal 2025[73](index=73&type=chunk) [Revenue by Segment](index=21&type=section&id=REVENUE%20BY%20SEGMENT) Q2 2025 saw a revenue decrease in IoT Products & Services due to inventory reduction, while IoT Solutions revenue grew from recurring revenue in SmartSense and Ventus - **IoT Products & Services** revenue decreased by **$5.6 million** in Q2 2025 year-over-year, driven by a **$6.8 million** decline in one-time sales as customers reduce inventory levels, partially offset by **$1.2 million** in recurring revenue growth[78](index=78&type=chunk) - **IoT Solutions** revenue increased by **$2.4 million** in Q2 2025 year-over-year, entirely from growth in recurring revenue from both SmartSense and Ventus[80](index=80&type=chunk) - Total Annualized Recurring Revenue (ARR) grew to **$123 million** as of March 31, 2025, up from **$110 million** a year prior, with IoT Products & Services ARR at **$28 million** and IoT Solutions ARR at **$95 million**[82](index=82&type=chunk) [Cost of Goods Sold and Gross Profit by Segment](index=21&type=section&id=COST%20OF%20GOODS%20SOLD%20AND%20GROSS%20PROFIT%20BY%20SEGMENT) Consolidated gross profit margin improved in Q2 2025, driven by a favorable product mix in IoT Products & Services and higher-margin subscription revenue growth in IoT Solutions Gross Profit Margin by Segment (Three Months Ended March 31) | Segment | 2025 Margin | 2024 Margin | Basis Point Change | | :--- | :--- | :--- | :--- | | IoT Products & Services | 58.9% | 54.0% | +490 bps | | IoT Solutions | 71.4% | 71.0% | +40 bps | | **Total Gross Profit Margin** | **62.1%** | **57.9%** | **+420 bps** | [Operating Expenses](index=22&type=section&id=OPERATING%20EXPENSES) Total operating expenses decreased in Q2 2025, primarily due to the non-recurrence of a significant litigation reserve from the prior year - General and administrative expenses decreased by **25.5%** year-over-year for the three months ended March 31, 2025, falling from **$18.6 million** to **$13.8 million**[88](index=88&type=chunk) - The decrease in operating expenses was mainly due to a **$6.3 million** litigation reserve in Q2 2024 that did not repeat in Q2 2025[88](index=88&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company maintains strong liquidity, with increased operating cash flow and a new $250 million revolving credit facility, sufficient to fund future operations - Cash flow from operating activities increased by **$24.3 million** for the six months ended March 31, 2025, primarily due to a **$19.6 million** increase in net income and favorable changes in net operating assets[107](index=107&type=chunk)[108](index=108&type=chunk) - In December 2023, the company entered a new **$250 million** senior secured revolving credit facility, replacing its prior agreement[105](index=105&type=chunk) Contractual Obligations as of March 31, 2025 | Obligation (in thousands) | Total | Less than 1 year | 1-3 years | 3-5 years | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $14,867 | $3,489 | $4,724 | $3,729 | $2,925 | | Revolving loan | $71,000 | $0 | $0 | $71,000 | $0 | | **Total** | **$85,867** | **$3,489** | **$4,724** | **$74,729** | **$2,925** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rate fluctuations on variable-rate debt and foreign currency exchange rate changes impacting financial results and equity - **Interest Rate Risk:** The company had **$71.0 million** outstanding under its variable-rate Revolving Loan as of March 31, 2025, where a hypothetical **25 basis point** change in interest rates would change annualized interest expense by **$0.2 million**[112](index=112&type=chunk)[115](index=115&type=chunk) - **Foreign Currency Risk:** A **10%** change in the average exchange rate for the Euro, British Pound, Australian Dollar, and Canadian Dollar against the U.S. Dollar would have resulted in a **0.9%** change in stockholders' equity during the first six months of fiscal 2025[117](index=117&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of the end of the period, the company's disclosure controls and procedures were effective[119](index=119&type=chunk) - No changes occurred during the six months ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[120](index=120&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=31&type=section&id=ITEM%201.%20Legal%20Proceedings) The company is subject to various claims and litigation in the normal course of business, with potential material impacts disclosed in Note 11 - In the normal course of business, the company is subject to various claims and litigation with third parties, where the outcome cannot be assured not to materially affect the business[55](index=55&type=chunk)[121](index=121&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=ITEM%201A.%20Risk%20Factors) The company faces risks from rapid technological changes, including AI, potentially rendering products obsolete, and from international tariffs impacting supply chains and costs - The company's industry is characterized by rapidly changing technologies, such as AI, and evolving standards, which could disrupt markets and render products obsolete[123](index=123&type=chunk) - Future success depends on the ability to enhance existing products and introduce new ones to meet changing customer requirements and emerging technologies[124](index=124&type=chunk) - Potential new or incremental international tariffs could materially and adversely affect the business by disrupting supply chains, increasing costs, and making products less competitive[126](index=126&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2025, 4,057 shares were repurchased at an average price of $34.91, primarily from employee forfeitures for tax withholding on restricted stock units Share Repurchases in Q2 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2025 | 35 | $32.15 | | Feb 2025 | 4,022 | $34.94 | | Mar 2025 | 0 | N/A | | **Total** | **4,057** | **$34.91** | - All shares purchased were forfeited by employees to satisfy tax withholding obligations from the vesting of restricted stock units[127](index=127&type=chunk) [Item 5. Other Information](index=32&type=section&id=ITEM%205.%20Other%20Information) No directors or officers adopted, modified, or terminated Rule 10b5-1 trading plans or other trading arrangements during the quarter ended March 31, 2025 - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the quarter[130](index=130&type=chunk)

[Financial Highlights and Executive Summary](index=1&type=section&id=Financial%20Highlights%20and%20Executive%20Summary) Digi International's Q2 2025 revenue decreased 3% to $105M, but profitability improved with gross margin up 420 bps and Adjusted EBITDA up 9% to $26M, alongside 12% ARR growth Q2 Fiscal 2025 Key Financial Metrics (vs. Q2 Fiscal 2024) | Metric | Q2 FY2025 | Q2 FY2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $105M | $107.7M (implied) | -3% | | Gross Profit Margin | 62.1% | 57.9% | +420 bps | | Net Income | $10M | $4M | +150% | | Net Income per Diluted Share | $0.28 | $0.11 | +155% | | Adjusted Net Income per Diluted Share | $0.51 | $0.49 | +4% | | Adjusted EBITDA | $26M | $23.8M | +9% | | Annualized Recurring Revenue (ARR) | $123M | $109.8M (implied) | +12% | - CEO Ron Konezny highlighted that the company's focus on a solution-oriented approach drove **ARR growth** and sustained profitability. Strong cash generation allowed for a **$25 million debt paydown**, accelerating the forecast for achieving **no net debt** to the end of the fiscal year[5](index=5&type=chunk) [Segment Performance and Capital Allocation](index=2&type=section&id=Segment%20Performance%20and%20Capital%20Allocation) IoT Product & Services revenue declined due to inventory reduction, while IoT Solutions revenue grew from recurring sources, with the company prioritizing deleveraging and strategic acquisitions [IoT Product & Services](index=2&type=section&id=IoT%20Product%20%26%20Services) IoT Product & Services revenue decreased to $77.8M due to product sales decline, offset by recurring revenue growth, with ARR up 22% to $28M and gross margin improving 490 bps IoT Product & Services Q2 FY2025 Performance | Metric | Q2 FY2025 | YoY Change | | :--- | :--- | :--- | | Revenue | $77.8M | -$5.6M | | ARR | $28M | +22% | | Gross Profit Margin | 58.9% | +490 bps | - The decline in product revenue was attributed to lower demand as some customers are reducing inventory that was stockpiled when supply chains were stressed[8](index=8&type=chunk) [IoT Solutions](index=2&type=section&id=IoT%20Solutions) IoT Solutions revenue increased by $2.4M to $26.7M, driven entirely by recurring revenue from SmartSense and Ventus, with ARR up 9% to $95M and gross margin increasing 40 bps to 71.4% IoT Solutions Q2 FY2025 Performance | Metric | Q2 FY2025 | YoY Change | | :--- | :--- | :--- | | Revenue | $26.7M | +$2.4M | | ARR | $95M | +9% | | Gross Profit Margin | 71.4% | +40 bps | [Capital Allocation Strategy](index=2&type=section&id=Capital%20Allocation%20Strategy) Digi's capital allocation strategy prioritizes deleveraging, inventory optimization, and disciplined acquisitions, resulting in reduced debt to $70.0M and strong cash flow from operations of $26M in Q2 - The company's top capital priorities are to continue **deleveraging** and seek **acquisitions that add scale and Annualized Recurring Revenue (ARR)**[10](index=10&type=chunk) Balance Sheet and Cash Flow Highlights (Q2 FY2025) | Metric | Value | Note | | :--- | :--- | :--- | | Outstanding Debt | $70.0M | Reduced via payments | | Cash Flow from Operations | $26M | vs. $13M in Q2 FY2024 | | Quarter-End Inventory | $39M | vs. $53M at Sept 30, 2024 | | Interest Expense | $1.3M | vs. $3.7M in Q2 FY2024 | [Fiscal 2025 Guidance](index=3&type=section&id=Third%20Fiscal%20Quarter%202025%20and%20Full-Year%202025%20Guidance) Digi increased its full-year 2025 profit outlook, projecting 5% Adjusted EBITDA growth, while revenue outlook remains flat year-over-year with 10% ARR growth, alongside specific Q3 guidance Updated Full-Year Fiscal 2025 Guidance | Metric | FY2025 Projection | Previous Projection | | :--- | :--- | :--- | | Revenue | Approx. flat YoY | Unchanged | | ARR | +10% YoY | Unchanged | | Adjusted EBITDA | +5% YoY | Approx. flat YoY | Third Fiscal Quarter 2025 Guidance | Metric | Guidance Range | | :--- | :--- | | Revenues | $104M - $108M | | Adjusted EBITDA | $25.0M - $26.5M | | Adjusted Net Income per Share | $0.47 - $0.51 | - The company has a long-term goal to grow ARR and Adjusted EBITDA to **$200 million** within the next 4 years, a timeline that could be accelerated by **strategic acquisitions**[12](index=12&type=chunk) [Financial Statements](index=7&type=section&id=Financial%20Statements) This section presents unaudited condensed consolidated financial statements for Q2 2025 and prior periods, including Statements of Operations, Balance Sheets, and Cash Flows [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2025 revenue decreased slightly to $104.5M from $107.7M, but improved gross profit and lower operating expenses led to net income more than doubling to $10.5M, or $0.28 per diluted share Q2 FY2025 Income Statement Highlights (in thousands) | Line Item | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Revenue | $104,503 | $107,702 | | Gross Profit | $64,933 | $62,318 | | Operating Income | $13,727 | $8,151 | | Net Income | $10,497 | $3,994 | | Diluted EPS | $0.28 | $0.11 | [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2025, Digi's balance sheet showed total assets of $781.0M, with significant reductions in long-term debt to $70.0M and inventories to $38.6M, while total stockholders' equity increased to $605.2M Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $26,296 | $27,510 | | Inventories | $38,601 | $53,357 | | Total Assets | $781,024 | $815,075 | | Long-term debt | $70,018 | $123,185 | | Total liabilities | $175,806 | $234,040 | | Total stockholders' equity | $605,218 | $581,035 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended March 31, 2025, cash from operating activities significantly increased to $56.0M from $31.7M, while net cash used in financing activities was $56.0M, primarily for debt repayment Cash Flow Summary (in thousands) | Activity | Six Months Ended Mar 31, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $56,005 | $31,727 | | Net cash (used in) provided by investing activities | $(1,135) | $1,425 | | Net cash used in financing activities | $(56,037) | $(42,692) | [Non-GAAP Financial Measures](index=9&type=section&id=Non-GAAP%20Financial%20Measures) This section reconciles GAAP to non-GAAP measures like Adjusted EBITDA and Adjusted Net Income, excluding non-cash or non-recurring items to present core operating performance - The company provides non-GAAP measures like **Adjusted EBITDA** and **Adjusted Net Income** because management believes they are useful for investors to evaluate **core operating results** and compare performance across periods by excluding significant non-cash or non-recurring items[22](index=22&type=chunk)[23](index=23&type=chunk) [Reconciliation of Net Income to Adjusted EBITDA](index=9&type=section&id=Reconciliation%20of%20Net%20Income%20to%20Adjusted%20EBITDA) Q2 2025 GAAP Net Income of $10.5M was reconciled to Adjusted EBITDA of $26.0M, representing a 24.9% margin, an improvement from 22.1% in Q2 2024, with major adjustments for D&A and stock-based compensation Adjusted EBITDA Reconciliation - Q2 (in thousands) | Line Item | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | Net income | $10,497 | $3,994 | | Adjustments (Interest, Taxes, D&A, etc.) | $15,518 | $19,831 | | **Adjusted EBITDA** | **$26,015** | **$23,825** | | *As % of total revenue* | *24.9%* | *22.1%* | [Reconciliation of Net Income to Adjusted Net Income](index=9&type=section&id=Reconciliation%20of%20Net%20Income%20to%20Adjusted%20Net%20Income) Q2 2025 GAAP Net Income of $10.5M ($0.28 per share) was adjusted to non-GAAP Adjusted Net Income of $19.0M ($0.51 per share), compared to $17.9M ($0.49 per share) in Q2 2024, with key adjustments for amortization, stock-based compensation, and interest expense Adjusted Net Income Reconciliation - Q2 (in thousands, except per share) | Metric | Q2 FY2025 | Q2 FY2024 | | :--- | :--- | :--- | | Net income | $10,497 | $3,994 | | Net income per diluted share | $0.28 | $0.11 | | **Adjusted net income** | **$18,967** | **$17,948** | | **Adjusted net income per diluted share** | **$0.51** | **$0.49** | [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section provides a standard safe harbor statement, cautioning that forward-looking statements are subject to numerous risks and uncertainties, including economic pressures, supply chain challenges, market competition, geopolitical conflicts, and regulatory changes - The company warns that projections regarding future performance, inventory levels, and acquisitions are subject to **significant risks**. Key risks cited include **global inflation**, **potential recession**, **supply chain disruptions**, **tariffs**, **cybersecurity threats**, and **geopolitical conflicts**[20](index=20&type=chunk)